Retail investors account for the major portion of funds flowing into Thailand's bourse, supported by temporary rule changes that help mitigate excessive losses and volatility.
Liquidity in Thailand's financial market noticeably increased during the past few months, with M2, a measure of the money supply that includes cash, checking deposits,and easily convertible near money, surging by 9.1% year-on-year in April, said Nuttachart Mekmasin, executive director at Trinity Securities.
The ratio is a seven-year high from July 2013 and above the average growth rate of 3.5% per year since 2014, he said.
"The growth of M2 is usually followed by a higher participation of retail investors," said Mr Nuttachart.
He said retail investors now make up almost 50% of total investors trading on the Stock Exchange of Thailand (SET) index, causing small and mid-cap stocks to rally on the back of fund inflows.
There were around 35 small and mid-cap stocks that outperformed the SET index during the lockdown, effective nationwide from April 3 to June 12.
During that period, foreign investors reported net sales worth 71.1 billion baht, while retail investors were net buyers of 23.5 billion worth of shares, followed by local institutional investors at 38.2 billion and brokerage firms at 9.45 billion.
The average trading value of SET-listed securities during the period was logged at 2.2 billion baht a day, up nearly twice from 1.27 billion in 2019.
The trading portion of retail investors rose to 48% from 37% in early 2020. The trading portion of foreign investors has fallen to about 30% from over 40%, with a foreign sell-off continuing to be seen in local shares, according to the SET.
The sell-off volume, however, subsided in April compared with the first three months as concerns over the pandemic did not flare up.
The portion of retail investors on the SET registered below 40% in 2018 as investors switched from stock trades to investment in single stock futures and other derivatives on the Thailand Futures Exchange to bet on high leverage on profits and losses in futures products.
The SET's uptick rule also motivates retail investors to invest in equities as it eliminates the risk of a hard fall from short selling, said Mr Nuttachart.
Effective since March and extended until Sept 30, SET members must short-sell stocks only at a price higher than the last trading price. Previously, the SET allowed members to short-sell stocks at a price not lower than the last trading price.
Meanwhile, corporate bond supply was quite slim during the previous months, therefore liquidity has flown from the bond market via fixed-income mutual funds to the stock market to seek higher returns, said Mr Nuttachart.
"Investors will not clearly return to the bond market at this time. Investor confidence of the BBB spread reached a record high at 4%, jumping from the average spread at 2.75% in 2019 and 2.5% in 2018 for bonds with a five-year maturity period," he said.
The wider spread reflects a higher risk, said Mr Nuttachart, adding that if companies want to raise funds from issuing debentures, they must offer higher yields above the market rate to attract institutional investors.
Companies have therefore sought corporate loans for funding instead.
"Money will be recycled in the stock market until confidence in the bond market recovers, otherwise the policy interest rate must be increased to absorb liquidity by the central bank. I expect neither of these to transpire this year," he said.